Geithner admits that he didn't see the mortgage crisis coming and didn't grasp the severity of the problems after it occurred.

Timothy Geithner, the former Treasury secretary (2009-13), believes in the forceful application of U.S. tax dollars when financial institutions are in crisis. It's a belief he holds proudly. In "Stress Test," Mr. Geithner makes a persuasive case that he is the man most responsible for the federal bailouts of 2008.

Some prefer to credit his Treasury predecessor, former Goldman Sachs CEO Hank Paulson. Others focus on the role of former Federal Reserve Chairman Ben Bernanke. But Mr. Geithner insists that, time and again as the crises flared in 2008, he was the most consistent and tireless advocate for government aid to struggling firms. His core principle is that, during a crisis, the creditors of large financial institutions should not suffer any losses.

In 2008, Mr. Geithner was president of the Federal Reserve Bank of New York,BK-1.21% and the first big test of his thinking was the March rescue of the investment house Bear Stearns. The firm, which was heavily exposed to subprime mortgages, had been planning to file for bankruptcy protection, and its regulators at the Securities and Exchange Commission were prepared to protect customer brokerage accounts. This was standard practice when securities firms failed. But Mr. Geithner intervened to give the firm short-term liquidity and arranged a sale to J.P. Morgan, a move that put U.S. taxpayers on the hook for some of Bear's risky mortgage paper. And so the taxpayer safety net was stretched to cover not just commercial banks but Wall Street investment houses as well.

In "Stress Test," Mr. Geithner argues that, though he understood that Bear "was not that big—only the 17th largest U.S. financial institution at the time"—its failure could have been catastrophic because "there were too many other firms that looked like Bear in terms of their leverage" and had similar exposure to devastating housing losses.

ENLARGE

Stress Test

By Timothy F. Geithner (Crown, 580 pages, $35)

But that's not what he was saying at the time, according to transcripts of the Fed's Federal Open Market Committee. At a meeting on March 18, 2008, a few days after the Bear rescue, Fed governor Kevin Warsh said that financial institutions were undercapitalized. In other words, they had too much leverage and too much exposure to potential losses. Mr. Geithner objected, saying: "It is very hard to make the judgment now that the financial system as a whole or the banking system as a whole is undercapitalized. . . . But based on everything we know today, if you look at very pessimistic estimates of the scale of losses across the financial system, on average relative to capital, they do not justify that concern."

Regardless of the story Mr. Geithner is telling now, there remains the question of why exactly America couldn't survive without a firm like Bear Stearns, which held no taxpayer-insured deposits. Mr. Geithner tells the story of Warren Buffett approaching him at a conference shortly after the rescue to offer congratulations. "I was sort of hoping you wouldn't do it, because then everything would have crashed and I would have been first in line to buy," said Mr. Buffett, according to the book. "It would have been terrible for the country, but I would've made a lot more money." A scenario in which Mr. Buffett is snapping up bargains doesn't sound like Armageddon.

One of the themes in "Stress Test" is Mr. Geithner's difficulty in understanding the health of large financial firms. He admits that he didn't see the mortgage crisis coming and didn't grasp the severity of the problems after it appeared. He didn't require that the banks he was overseeing raise more capital because his staff's analysis couldn't foresee a downturn as bad as the one that occurred.

None of this is particularly surprising in a man who, at the time he became president of the New York Fed, had never worked in finance or in any type of business—unless one counts a short stint in Henry Kissinger's consulting shop. At Dartmouth, Mr. Geithner "took just one economics class and found it especially dreary." After three years at Kissinger Associates, he spent 13 years at the Treasury Department, becoming close to both Robert Rubin and Larry Summers, and then worked at the government-supported International Monetary Fund. Messrs. Rubin and Summers recommended him to run the New York Fed. "I felt intimidated by how much I had to learn," he writes of taking up the job in 2003.

Mr. Geithner's New York Fed was the primary regulator for Citigroup,C-0.71% where Mr. Rubin was a director. Although a former senior executive at the bank had warned Mr. Geithner that Citigroup was "out of control," and the staff at the New York Fed "always considered [Citigroup] a laggard in risk management," Mr. Geithner figured it wasn't as risky as many of the non-banks that didn't hold insured deposits. Looking back now, he concludes that "Bob Rubin's presence at Citi surely tempered my skepticism, and he probably gave Citi an undeserved aura of competence in my mind." Citigroup would require a series of taxpayer bailouts after it had been allowed to hide more than $1 trillion in risky assets outside its balance sheet. Mr. Geithner admits that "it wasn't as well capitalized as we thought."

Mr. Geithner was perhaps a natural choice to be Barack Obama's Treasury secretary, given how many Rubin and Summers associates were populating the administration. In his new job, he continued to promote his no-haircuts-for-creditors principle and even helped codify a plan for the largest firms to avoid bankruptcy if regulators believed their failure could be damaging to the financial system.

Mr. Geithner scoffs at what he calls the "moral hazard fundamentalists" and "Old Testament" types who worry that bailing out financial firms will encourage even riskier behavior. He says that the financial rescue programs enacted in the crisis years were a success because the alternative—which no one can ever know—would have been far worse. What we do know is that, six years later, the economy is suffering through a historically weak recovery and the emergency programs haven't ended. The Federal Reserve is still providing easy credit for banks and for the U.S. government, which has racked up more than $8 trillion in additional debt since the end of 2007.

Though I do not agree with all… mostly because I think all the understanding and handling of what was happening was so much worse, I need to congratulate James Freeman for this piece of good social sanctioning. The only way to stop a repeat in the future is to hold accountable those in the past.

WOW, what a revelation. Goes to show, having a big head makes for a good on camera appearance and the importance of reasonably good hair. Paulsen's no better - his only arrow; deal-making. Here's 8 wasted years we'll never get back, if we survive them, at all.

" It's impossible to know what would have happened with another person,..." Really? Then how can we know that the financial system collapse would have been disastrous? This is what happens in a capitalist system. There are inherent risks in lending money, or investing in companies, and the greater the risk, the greater the reward/return. Nowhere in the equation is government intervention, much less an outright bailout. Why should the taxpayer be subsidizing the losses of multimillionaires? Because we averted a financial disaster? Not good enough. Who put us on the path to that disaster in the first place? What policies that were pursued by business or government resulted in the placement of our financial system at the edge of an abyss? Had there been a "financial disaster" the public would have demanded and gotten answers to these questions. Again, a function of a capitalist system. All Timmy Geithner and his cronies did was subvert that function by "rescuing" the system with taxpayers dollars. All for our own good of course.

So the guy who became Treasury Secretary, in spite of his proven record of filing false tax returns tells us what a genius he is in saving the world from financial collapse. If you want to know why we had the Great Recession you won't find it in this revisionist history. I suggest Stockman's "The Great Deformation" on how Wall Street became Las Vegas and continues to this day but protected from their own greed with Dodd/Frank and Joe Sixpack taxes. A classic case of why the Big Banks need to be busted up into smaller entities that can fail and just wipe out their greedy owners and not the entire economy. But with an Administration owned by the greedy, it is only a matter of time before we hit the wall again, just like the dot-com bust on Clinton's watch.

You can argue that Geithner created moral hazard with his bailout, but you can't argue his intervention was anything but an enormous success. TARP made a profit... a large one. Mr. Buffet might be a hard capitalist, but even he knew that the results of letting the financial system collapse would have been disastrous. It's impossible to know what would have happened with another person, but Tim Geithner is one of the people that saved us from a depression.The editorial ends with a complaint about the weak recovery, but is that Geithner's fault? In general, recoveries after banking crises are weak... you can't pin that on him.

I'll never forget when the government (Senate) was undergoing the confirmation process, it was said that Geithner was the only possible person that could lead the country out of the financial mess. This guy had a thin resume but was politically connected. Shame on all the senators that voted for him.

Timmy Tax Cheat took one economics course, Nigeria has $12 kidnapped girls for sale, ACA doesn't get the job done and never will, Obama laments his apparent lack of 'power' to do much more than "I have a and pen and I have a phone" excuse, Putin takes Crimea and the world "...at this point in time" doesn't seem to much care beyond a #!

Mr. Freeman and or his newspaper leaves the impression that Geithner was the head of Bank of New York Mellon by noting its stock symbol, BK, next to his name as the Federal New York Bank head. The Federal Bank of New York is not the Bank of New York Mellon. As a BK stockholder, I'm very happy Geithner did not lead BNY Mellon.

It was no coincidence that Geithner was chosen to head Treasury. His limited experience in finance is what got him the job. Any financial professional would have seen the problems immediately and chosen a different course than the one Geithner was 'told' to pursue by his mentors, the very people who benefited from his course of action.

Exhibit A of why centralizing ever more power in government is so dangerous - ignorance gets centralized right along with the power, and mistakes and miscalculations become nationwide problems instead of localized problems.

Geithner makes a strong case in his book (and lately, on the air too) for the 2008 bailout. *That* part of the Obama Administration's economic program -- putting out the flames -- was clearly a success.

It also sounds like he challenged the President numerous times on the alternate reality of Democratic budget wishful thinking. Kudos for that too.

If Geithner fell down in other ways, it is in my opinion due to his overly trusting relationships with Summers, Robert Rubin, and other economic elites of the Democratic Party. I think he was disappointed repeatedly by those he admired, in the end.

It's shocking how pervasive the Peter Principle really is. Geithner never really worked in a job of any true responsibility. He never did anything of consequence other than be personable & likeable. To think he really knew NOTHING about his job.... Shocking is really the only word for it. The position is not an elected one either so you can't blame it on voter fraud or public stupidity. It's an appointed position - you could thoughtfully screen & vet any nominee for the position. But what rose to the top was utter inexperience.

I recall very clearly when the bailout was happening, an economist on television (I can't remember who) said we shouldn't do it--that we would be mimicking Japan in the 80's and condemn us to stagnant growth for more than a decade. Well..........

Watching some old "Untouchable" episodes, (you know, the original good ones with Robert Stack), and thinking about the history of organized crime and the various shakedown schemes they had, and realized that what happened is that a stronger Mafia came along called "Government" and that's who you have to pay 'protection' and shakedown (Taxes) in order to do business.The names changed but the game remains the same.I personally do not understand how Mr Obama, Harry Reid, Nancy Pelosi, et al can sleep at night after delivering the most blatant falsehoods all day long. Can they REALLY not be aware that they are lying?

Well, speak of the devil lying or the lying devil. This is about how the Administration egged on by the White House lies, and lies big time, and a connection to Benghazi and the lying by Susan Rice about the video on five Sunday shows.

I haven't read the Geithner book but I just heard that one of his revelations is that on one occasion when being briefed by Dan Pfeiffer for a Sunday show or shows, Geithner was told to say that social security didn't contribute to the deficit. At least according to Geithner, the social security does contribute to the deficit and he was upset at the White House wanting him to "shade the truth."

"I was sort of hoping you wouldn't do it, because then everything would have crashed and I would have been first in line to buy," said Mr. Buffett, according to the book. "It would have been terrible for the country, but I would've made a lot more money."

I rest my case about Mr. Buffett. He is only interested in himself. Hardly the kindly old grandfather image the MSM would have us believe.

"His core principle is that, during a crisis, the creditors of large financial institutions should not suffer any losses."

For Geitner to hold this policy belief while at the same time scoffing at the notion such a policy would encourage reckless and high risk behavior within large financial institutions is juvenile.

In fact, Dodd Frank, second only to The Trainwreck in government overreach, complexity and confusion, includes a "too big to fail" policy dictate. Timmy the tax cheat was instrumental in the development of Dodd Frank.

It is an awful bill.

Geitner, presiding over the largest explosion of American debt over a 4 year period in history was not only in over his head, but like his narcissistic, ignorant boss, is really impressed with his personal incompetence.

Geithner's' book is really a tale of cronyism and corruption to rival and exceed anything we've observed elsewhere. The net take on this is trillions of dollars and counting. Why the Republicans don't call this out and campaign against this is too saddening to contemplate. Why the media refuses to cover the story is an example of the fall of journalism into slobbering slaves of decadent totalitarian governments, much as they did in 1930's Germany, Soviet Russia, Mao's China and elsewhere.

Obama had to know what was going, on but preferred to limit his attention to the usual lefty liberal suspects and neglect his oath of office to protect the country and the constitution.

I was making millions selling dodgy mortgages hand over fist to New Century, Ameriquest, Fremont, and Countrywide Full Spectrum from 2000-2007, I saw this thing coming a mile away. How these clowns say they couldn't see the crisis coming, I'll never understand...

How did TARP make a profit? Only in the wacky world of "financial accounting" where money can be printed from thin air, loans offered at zero percent, and the ultimate sugar daddy (the Fed) can buy all your bad debt. Heck if banks can't make a profit the last six years they would be beyond imcompatant.

This idea that you have to bail out banks is ridiculous. The money wasn't destroyed, it would have been lent out but at higher rates which was the problem, when you have an economy based on artificially low rates you can't allow the market to work, too many well connected folk on the Street and in DC would lose their pants...which of course we can't have.

Harding did the right thing in the Great Recession of 1920, he let prices fall, banks go under and he cut govt...we have a real recovery in months not years...bankers need a good dose of the free market..you make bad decisions, you go under...

With our oppressive, irrational tax system, it would be a rash (and endless) threshold to disbelieve tax cheats. It is prudent and justifiable to distrust a tax cheat who is an integral leader of the Treasury, however.

I disagree. Geithner's policy choices could have been different in retrospect, and he tends to trust Democrats *way* too automatically, but he's much more honest than anyone else from this administration has been... with the possible exception of Robert Gates.

Frank, trust me. You don't want to Buffet to buy your company. Anyone that has dealt with him will tell you that the sage of Omaha did not become the richest person in the world by being generous to his adversaries although he can be very generous to worthy causes.

Refreshing up to a point. I watched him testify before Congress a few times and actually paid attention because of my interest in the subject. Geithner behaved like a spoiled child, half of the time answering with sarcasm and another half spinning what he said. In fact, I used to find it somewhat disrespectful of the congress people, not that they deserved respect but for their positions.

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